CTHHCA

Motor Terms Co Pty Ltd v Liberty Insurance Ltd

[1967] HCA 9

High Court of Australia|1967-07-01|Before: Owen JJ, Kitto J

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Source facts

Court

High Court of Australia

Decision date

1967-07-01

Before

Owen JJ, Kitto J

Source

Original judgment source is linked above.

Judgment (56 paragraphs)

[1]

High Court of Australia Barwick C.J. Kitto, Taylor, Menzies and Owen JJ. Motor Terms Co Pty Ltd v Liberty Insurance Ltd [1967] HCA 9

[2]

I have had the advantage of reading the judgments about to be delivered by my brother Taylor and by my brother Menzies. I agree with their conclusions and the several reasons they give for arriving at them. I would wish merely to say for myself that, in my opinion, the relevant date at which to determine whether or not for the purposes of a liquidation under the Companies Act, 1961 N.S.W., a debt is statute-barred is the date of the presentation of the petition on which the winding up order has been made. Of course, if the petitioner's status as a creditor is challenged before the order is made, the date of the presentation of his petition will also be the appropriate date. The date of the presentation of the petition on which the order is made is set by the Companies Act (s. 223 (2)) as the date of the commencement of the liquidation, that is to say, as the date of the commencement of the process of administering the assets of the company with a view to their proper distribution according to the statute amongst the creditors. That date to my mind is both the logical and the practical date, as well as being the date chosen by the legislature, as at which to determine who are the creditors and as at which to adjust their rights. That process is statutory and does not, in my opinion, invite analogy with an administration suit: nor, in my opinion, are the statutory duties and obligations of the liquidator to be explained by reference to the laws relating to trusts.

[4]

It is convenient to consider first the question of construction, whether s. 221 (1) (b) authorizes the making of an order where the petitioning creditor's debt, though not barred under the Statute when the petition was presented, is so barred by the time the petition comes on to be heard. It is a question as to whether the word "creditor" in the section excludes a statute-barred creditor, and, if so, as at what date the court must be satisfied that a petition upon which it is invited to make a winding up order is the petition of a "creditor" in the relevant sense of the word. The application of the word in its most general sense is not affected by the Statute of Limitations, for the operation of the Statute in respect of a debt is only to bar the remedy: it does not extinguish the debt. But in construing statutory provisions for the distribution of assets amongst creditors there is a natural presumption that the only creditors in contemplation are those who, by the operation of the relevant statute in the particular case, are denied a right they would otherwise have had to sue for their debts by action or suit under the general law and are given instead a right to participate in the distribution. In the case of a bankruptcy or the winding up of a company the event upon which the substitution takes place is not the event which the relevant legislation deems to be the "commencement" of the bankruptcy or of the winding up: it is the commencement of the administration, that is to say the adjudication in bankruptcy or the making of the order for winding up. Lord Eldon made the general principle clear when he said in Ex parte Dewdney [1] that in the consideration of the old Bankruptcy Acts "a Commission of Bankruptcy is nothing more than a substitution of the authority of the Lord Chancellor enabling him to work out the payment of those creditors who could, by legal action or equitable suit, have compelled payment". Under the Bankruptcy Act 1924-1960 Cth a creditor's right to recover his debt by ordinary legal proceedings is taken from him at sequestration (s. 60, cf. s. 63) and the right of proof which he is given in its place is expressly limited to liabilities to which the bankrupt is subject at the date of the sequestration order (s. 81). Under the Companies Act, 1961 N.S.W. in the case of a compulsory winding up the more important provisions by which a right of participation in distributions under the authority of the court is substituted for a pre-existing right of suit are s. 233, placing all the company's property in the custody of the liquidator upon the making of the winding up order; s. 244, requiring the assets to be applied in discharge of the company's liabilities; s. 291, giving creditors their right of proof in the winding up; and s. 226 (3), which operates automatically on the making of a winding up order to prevent any action or proceeding from being proceeded with or commenced against the company, in contrast with s. 226 (1) which recognizes that prima facie the presentation of a petition is no bar to a creditor's pursuit of his remedies in the ordinary courts.

[11]

The respondent attacks the use above made of the decisions which fix the time of the winding up order as the time for deciding whether by the provisions or the analogy of the Statute of Limitations a debt is excluded from proof in a winding up by the court, and the argument submitted is that which, in the main, led the court below to uphold the winding up order in the present case. What is said is that though the general rule be as was laid down in In re General Rolling Stock Co., Joint Stock Discount Co.'s Claim [1] , it should be held to be subject to an exception in favour of the debt upon which the petition for winding up was founded, and that there is therefore no reason for limiting the meaning of the word "creditor" in s. 221 (1) (b) so as to exclude a petitioner whose debt is statute-barred. It is pointed out that in In re General Rolling Stock Co. [1] Mellish L.J. based his concurrence in the decision upon the view that the Companies Act intended the court to follow by analogy the rule which it had long applied in relation to bankruptcy, insolvency, trusts for creditors and administration decrees, that is to say that every creditor might prove who had a subsisting (i.e. an enforceable) claim at the time of the adjudication, the insolvency, the creation of the trust or the decree, and that the analogous time was the making of the winding up order. Then it is said that, in the case of administration decrees at least, the rule had long been subject to an exception in favour of the debt upon which the decree had been based, and that the adoption of the rule in construing the winding up legislation should logically have carried with it an adoption of the exception. In order to show that the exception was allowed in administrations, reference is made to cases such as Fuller v. Redman [No. 2] [2] , but that case itself reveals what was the true nature of the exception and shows that reliance upon it in the present connexion is mistaken. The only case to which the exception applied was that in which a creditor whose debt was statute-barred had nevertheless succeeded in obtaining a decree because the defendant executors, who were not bound to plead the statute, had in fact not done so. In an administration thus brought about it was held, naturally enough, that no other creditor could object to the admission of the plaintiff's debt on the ground that it was statute-barred, because to do so would be to attack the foundation of the very decree under which the objecting creditor himself was claiming to come in. He would be attempting, in Sir John Romilly's words [3] "to contest the propriety of the decree of which he obtains the benefit". But it is implicit in this that if the objection that the plaintiff's debt was statute-barred had been taken by the executors before the decree was made, the impropriety of making the decree would have been recognized and the suit would have been dismissed. Thus in Ex parte Dewdney [1] , Lord Eldon, referring to the administration of assets under a creditor's bill, said that executors are not bound to plead the Statute of Limitations, and added: "if they do not, the creditor, filing the bill, will have a decree on behalf of himself and all other creditors; and will be paid". On the other hand, if they do, he will not have a decree at all. In the present case the appellant, being the party with the right to oppose the making of the winding up order, does plead the Statute of Limitations; and it is no answer for the respondent to say (even if it be true) that if the appellant had refrained from taking the point no one claiming to be interested in the winding up would have been allowed to raise it after the order had been made.

[16]

The earlier letter is not now relied upon, but the latter is. It was written by the appellant and addressed to a firm of accountants, a member of which, a Mr. Davidson, was one of the joint liquidators of the respondent. It began "Dear Sir" (in the singular) and referred to previous discussions which must have been with Mr. Davidson; it is clearly a letter to him as liquidator of the respondent. Whether as a matter of interpretation it acknowledged a then existing indebtedness is a question which cannot be answered without regard to the surrounding circumstances; for so far as its express terms are concerned it acknowledged only that an amount would be owing by the appellant to the respondent at a future date, namely 31st May 1963. The words used were: "As our financial year ends on 31st May, it would be very much appreciated if you would confirm the amount that will be owing by (the appellant) to (the respondent) up to 31st May 1963". This of course implies that at the date of the letter there was between the parties a subsisting legal relationship of such a kind that the respondent was in a position to say at once how much would be owing on 31st May. This is consistent with the existence of a contractual relationship under which no debt was presently owing; but the letter commenced with a reference to "previous discussions and to your last letter and statement in connexion with Liberty". The letter and statement here referred to were not proved at the hearing, but the previous discussions were described by Mr. Davidson in an affidavit as "numerous conferences with Mr. Boris Ganke, the present Managing Director of the Company". "Our conversations with each other" he said, "always proceeded on the basis that the said debt (i.e. the relevant debt) was owing by the Company (the appellant)." Without reviewing the evidence in detail it may be said broadly that the making of the loans and the accrual of interest thereon were frequently referred to between the parties and in the appellant's own accounts, and that there is a complete absence of anything to suggest any other form of legal obligation which might have been the subject of the letter of 23rd May 1963. The appellant's reason for asking that the amount that would be owing at 31st May 1963 be confirmed is readily understood when it is found, as the evidence discloses, that the appellant's balance sheet for the previous year, i.e. as at 31st May 1962, had shown as a current liability a debt of £27,435 to the respondent, but that the annexed auditors' report had stated that the auditors had "not been able to verify with (the respondents) the amount of £27,435 stated to be owing to that Company". Read against this background, the letter seems plainly to have meant that the debt which had been under discussion with Mr. Ganke and to which the unverified entry in the previous year's balance sheet had referred was still owing and that interest was accruing upon it.

[27]

It is conceded that if the third paragraph were omitted from this letter it would constitute a sufficient acknowledgment for the purposes of the Statute of Limitations. But it is contended that the third paragraph introduced a condition which is inconsistent with the implication of a promise to pay. In my view this contention must be rejected. The letter makes a clear distinction between "the amount that will be owing by Motor Terms to Liberty up to 31st May 1963" and the amount or amounts referred to in the third paragraph. The reference in that paragraph to an agreement "to settle the total debt for £17,252" and the request for "a statement to the effect that Motor Terms will not be required to pay an amount exceeding, say, £18,000 would be sufficient for our purposes" in no way disputes the appellant's liability for the full amount of an existing debt. Nor is it inconsistent with what has been called "the promise artificially implied as the result of the admission of the debt"; it amounts to no more than a request to the respondent to intimate that it will not insist upon payment of the full amount. As Dixon J. (as he then was) said in Bucknell v. Commercial Banking Co. of Sydney Ltd. [1] : "The law implies from an acknowledgment of the existence of the liability a promise to discharge it. Words clearly acknowledging that the writer is liable suffice to raise the implication. But although the promise is implied as an artificial legal consequence of the written admission of liability and is not the result of a search after the true meaning disclosed by the writing, yet if the document in which the admission occurs expresses an intention inconsistent with the making of such a promise or an intention consistent only with the making of a qualified promise, the implication will be rebutted or qualified accordingly". Later he said: "To control the promise artificially imputed as the result of the admission of the debt more is required than such a general intention gathered from the subject and purpose of the discussion in the course of which the admission is made. There must be a sufficient expression of a definite condition or limitation, and it must be attached to the acknowledgment or to some promise displacing the promise otherwise implied, or there must be a refusal to pay beyond or outside the qualification or condition, or in some other way payment beyond or outside the qualification or condition must be repudiated" [1] . To my mind, the third paragraph of the letter in no way qualifies or otherwise attaches a condition to the clear admission of liability made by the second paragraph of the letter and the promise which is to be implied from its terms. In the circumstances, and having regard to the manner in which these two companies were associated, it amounted to no more than a request that the creditor would not claim its debt in full and that the appellant would "not be required to pay an amount" exceeding that specified. In the circumstances, I am of the opinion that the respondent's debt was not statute-barred at any material time and that the appeal should be dismissed on this ground. In these circumstances the question whether it was proper to make a winding up order on the petition does not arise but in deference to the reasons of the Full Court I propose to make some brief observations on the point. The resolution of this question does not necessarily involve the further question whether the respondent is entitled to rank for dividends in the winding up but, if it is, this would, in my view, be a complete answer to the objection raised by the appellant. 1. (1937) 58 C.L.R. 155, at p. 164. 2. (1937) 58 C.L.R., at pp. 166, 167.

[28]

I am of the opinion that the conclusion which the members of the Full Court reached was right; my only misgiving is that the leading judgment is based upon reasons which may be thought to limit unduly the rights in a winding up of creditors other than the petitioning creditor or creditors. I commence my observations by saying that I do not regard the decision in In re General Rolling Stock Co. [1] , as concluding the relevant question in the appellant's favour. The decision in that case was, simply, that a creditor whose debt was not statute-barred at the time when the winding up order was made, but was when he lodged his proof of debt, was entitled to prove; it does not decide that a creditor whose debt was not statute-barred at the time of the presentation of the petition, but whose debt became statute-barred before the winding up order was made, was not entitled to prove. It is true that the decision in the case rests upon reasoning which, at first sight, would tend to confirm the affirmative of the latter proposition for it was pointed out that upon the making of a winding up order the effect of s. 98 of the Companies Act, 1862 was to create what was, in effect, described as a statutory trust for the administration of the company's assets. But the judgments were extemporary and no consideration was given to s. 84 of the Act which provided that a winding up of a company by the court should be deemed to commence at the time of the presentation of the petition for the winding up, or to s. 85 of the Act which provided that the court might, at any time after the presentation of a petition for winding up a company under the Act, and before making an order for winding up the company upon the application of the company restrain further proceedings in any action, suit, or proceeding against the company, upon such terms as the court might think fit. Further, s. 153 provided that "Where any company is being wound up by the Court or subject to the supervision of the Court, all dispositions of the property, effects, and things in action of the company, and every transfer of shares, or alteration in the status of the members of the company, made between the commencement of the winding up and the order for winding up, shall, unless the Court otherwise orders, be void", whilst s. 163 provided that "Where any company is being wound up by the Court or subject to the supervision of the Court, any attachment, sequestration, distress, or execution put in force against the estate or effects of the company after the commencement of the winding up shall be void to all intents". These provisions seem to me to make it reasonably clear that the so-called statutory trust is to take effect retroactively to the commencement of the winding up and that the rights of the creditors are to be regarded as subject to the rights created by the statute as from the commencement of the winding up. It would be, at least, strange if a creditor, not being a petitioning creditor, whose debt was not statute-barred at the commencement of the winding up but who foresaw the possibility of it becoming statute-barred before the making of the order, would find it necessary to protect himself by commencing an action which was liable to be stayed under s. 143 and in the prosecution of which he could obtain no other benefit, or if a creditor, whose debt had been paid in full but the payment - made in circumstances not involving any written acknowledgment - was void under s. 153, would have no rights if before the winding up order was made the statutory period elapsed. These provisions are designed to make the statutory trust fully effective as from the commencement of the winding up and to ensure a fair and equitable distribution of the company's assets.

[31]

I observe that in In re Benzon; Bower v. Chetwynd [1] - a case which does not deal with the question under consideration here - the Court of Appeal said [2] that: "As to the second point, cases were quoted beginning with Ex parte Ross [3] , which shew that in the bankruptcy a debt does not become barred by lapse of time if it was not so barred at the commencement of the bankruptcy, and of this there can be no doubt, but this is only in the bankruptcy." Unfortunately the case of Ex parte Ross [3] does not provide a foundation for the proposition as stated; that case simply decided that the effect of a commission in bankruptcy in 1827 was to vest the property of the debtor in his assignees for the benefit of his creditors and that unless debts were already barred by the Statute of Limitations when the trust was created they could not subsequently be affected by a lapse of time. However, since that time there has been a marked change in the provisions of the bankruptcy legislation dealing with the relation back and the commencement of the bankruptcy (see note Williams on Bankruptcy, 16th ed. (1949), p. 243) and I can see no reason why, if a debtor's property is to be expropriated as from the commencement of the bankruptcy, whether it be found in the hands of the debtor or in the hands of persons to whom he has disposed of it after the commencement of the bankruptcy, it is not reasonable to conclude it was intended that the trustee should be bound to admit the claims of creditors whose debts were not statute-barred at that point of time. This would, of course, include the claims of creditors, whose debts having been paid in full after the commencement of the bankruptcy and before they had become statute-barred, have been compelled to make a refund to the trustee at a time when their debts had become statute-barred. It seems to me that having regard, particularly to ss. 223, 226, 227 and 228 of the Companies Act, 1961, the same considerations are applicable to a winding up and that a creditor whose debt has not become statute-barred at the commencement of the winding up may prove in the winding up, notwithstanding that at the time of the making of the order his debt has become statute-barred unless it appears that after the commencement of the winding up it has been validly discharged. I do not think there is anything in In re General Rolling Stock Co. [1] to compel us to hold to the contrary and, accordingly, I agree that the order was properly made and that this appeal should be dismissed.

[46]

The only reason relied upon by the appellant for refusing to treat a petitioning creditor whose debt has become statute-barred at law between the date of the presentation and the date of the determination of the petition, as a creditor upon whose petition a winding up order can be made depended upon the construction which it was claimed had been given to sections of the English Act corresponding with those sections of the Act dealing with the distribution of the assets of a company in the course of a winding up - e.g. ss. 224 (1) and 264. The case principally relied upon was In re General Rolling Stock Co. [1] , where it was decided that in a winding up, the assets of the company are made applicable to the payment of all liabilities of the company subsisting at the date of the winding up order. There, an order to wind up a company had been made on 11th February 1865. In February 1865 and at the beginning of March 1865, bills payable by the company fell due but no claim was made in the winding up for the debts thus becoming due until March 1871. The liquidator then contended that the claimant was not entitled to prove because by then his debts had become statute-barred. The court held that the claimant was entitled to prove. That decision has, of course, no direct application to s. 221 of the Companies Act, for it relates to creditors entitled to prove, not to creditors who may petition, but it was argued that it was to be implied from that decision that it is the making of a winding up order that stops time from running against a creditor of a company and that, therefore, time continues to run against a creditor up to that time notwithstanding that he has, before the time for the barring of his debt had run, petitioned for the winding up of the company. In my opinion, the case cannot be regarded as authority for the proposition that a petitioning creditor ceases to be a creditor for the purposes of a winding up if after the presentation of his petition, time sufficient to bar his debt at law elapses. The court was not asked to consider whether a debt not barred at the time of the commencement of the winding up could be the subject of a claim in the winding up; it was asked to decide whether a debt not barred at the time of the winding up order could be the subject of a claim. It was decided that it could. In so deciding, the court did not, as I apprehend the judgments, decide that a creditor at the time of the commencement of a winding up action thereafter by the lapse of time ceases to be a creditor, or a creditor entitled to prove in the winding up. Indeed, in that case it seems likely that the claimant was not a creditor of the company at the date of the commencement of the winding up because some, and perhaps all, of the bills did not become due until after that date. Curiously enough, the case is cited in Buckley on The Companies Acts, 13th ed. (1949), as authority for this proposition: "The winding up order constitutes the liquidator a trustee of the property of the company for those who were creditors at the commencement of the winding up and prevents the Statute of Limitations from running".

Motor Terms Co Pty Ltd v Liberty Insurance Ltd - [1967] HCA 9 - HCA 1967 case summary — Zoe